Cringely Follows the Money

Posted on August 20, 2007
Filed Under Markets |

Robert Cringely concluded his three-part tale of political corruption and corporately veiled greed in his story, The $200 Billion Rip-Off: Our broadband future was stolen. The US telecommunications industry, particularly in its Internet service, has been degraded from a world leading system to a backward mediocrity that can’t compete globally - all in less than two decades.

And US consumers have been ripped of - there is no better description - to the visible tune of $200 billion. If you find this assertion difficult to accept, try this:

All 50 U.S. states and the District of Columbia contracted with their local telecommunication utilities for the build-out of fiber and hybrid fiber-coax networks intended to bring bidirectional digital video service to millions of homes by the year 2000. The Telecom Act set the mandate but, as it works with phone companies, the details were left to the states. Fifty-one plans were laid and 51 plans failed.

Failure is not foreign to the information technology business. Big development projects fail all the time and I have written several times about this and how those failures come to be and how they can be avoided. But I find it hard to remember any company or industry segment ever going zero for 51. This is a failure rate so amazing that any statistician would question the motives of those even entering such an endeavor. Did they actually expect to succeed? Or did they actually expect to fail? We may never know and it probably doesn’t even matter, but one thing is sure: they expected to be paid and they were.

Over the decade from 1994-2004 the major telephone companies profited from higher phone rates paid by all of us, accelerated depreciation on their networks, and direct tax credits an average of $2,000 per subscriber for which the companies delivered precisely nothing in terms of service to customers. That’s $200 billion with nothing to be shown for it.

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